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ATS Products, Inc v. Champion Fiberglass, Inc.

United States District Court, Northern District of California

November 11, 2014

ATS PRODUCTS, INC, Plaintiff,
v.
CHAMPION FIBERGLASS, INC., Defendant. Re: Dkt. Nos. 53, 58

ORDER GRANTING PLAINTIFF'S MOTION FOR LEAVE TO FILE SECOND AMENDED COMPLAINT

SUSAN ILLSTON United States District Judge

Plaintiff's motion for leave to file a second amended complaint, and defendant's motion for a protective order, are scheduled for a hearing on November 13, 2014. Pursuant to Civil Local Rule 7-1(b), the Court determines that plaintiff's motion for leave to file a second amended complaint is appropriate for resolution without oral argument. The Court VACATES the hearing on that matter, and GRANTS the motion for leave to file an amended complaint for the reasons set forth below. The Court also VACATES the hearing on the motion for a protective order. The Court will address discovery issues with the parties at the November 14, 2014 case management conference. The second amended complaint must be filed by noon on November 14, 2014.

BACKGROUND

1.Factual Background

Plaintiff ATS Products, Inc. (“ATS”) is a California corporation. Docket No. 25, First Amended Complaint (“FAC”), ¶ 1. Defendant Champion Fiberglass, Inc. (“Champion”) is a Texas corporation. Id. ¶ 2. The following allegations are taken as true for purposes of the present motion. ATS owns trade secrets relating to “confidential and proprietary information concerning the ingredients, and relative weights of those ingredients for making fire-safe plastics by combining phenol-resorcinol resins with catalysts and/or fillers.” Id. ¶ 5. During the 2000s, Champion worked with ATS’s predecessor in interest, Shea Technology, to develop an electrical conduit built using ATS’s resins. Id. ¶ 10. Throughout that process, Champion worked with Frank Ghiorso, an employee of Shea Technology.

In 2007, Ghiorso allegedly formed Thermalguard Technology, LLC and began building resins using ATS’s misappropriated trade secrets. Id. In 2009 and 2010, Champion purchased resins from Thermalguard Technology, LLC. Id. In 2010, Champion’s president and Ghiorso formed a new company, Thermalguard, LLC. Id. On October 28, 2010, ATS brought suit against Ghiorso and his companies, Thermalguard Technology, LLC, and Thermalguard, LLC, alleging violations of ATS’s trade secret rights, ATS Products, Inc. v. Frank Ghiorso, et al., Case No. C 10-4880 BZ. Id. ¶ 9. Throughout that litigation, Champion paid for the defense of all the defendants. Id. ¶ 10. The case proceeded to trial and ATS prevailed. Id. ¶ 11. ATS alleges that Champion used the resins it purchased from the Thermalguard companies to produce its Flame Shield product, which it then sold to Bay Area Rapid Transit (“BART”), in California. Id. ¶¶ 15-20.

2.Procedural History

On May 28, 2013, ATS filed this suit against Champion, alleging three causes of action: (1) violation of California’s Uniform Trade Secrets Act (“CUTSA”) by misappropriation of a trade secret through acquisition and by use; (2) conspiracy to violate CUTSA; and (3) unfair competition. Id. ¶¶ 19-38. On November 19, 2013, the Court granted in part and denied in part Champion’s motion to dismiss all causes of action in ATS’ complaint. Docket No. 21, Order Granting In Part and Denying In Part Def. Mot. to Dismiss (“Order”). In that order, the Court held that plaintiff had not sufficiently alleged misappropriation of a trade secret through use:

One “uses” a trade secret when one directly exploits that secret for one’s personal gain. Silvaco, 184 Cal.App.4th at 224. “But ‘use’ in the ordinary sense is not present when the conduct consists entirely of possessing, and taking advantage of, something that was made using the secret.” Id. (emphasis in original). ATS has not alleged that Champion exploited its trade secrets for its own gain, an act that would constitute use. ATS has only alleged that Champion used the resin – not the trade secret formulas – to create the Flame Shield product that it eventually sold to BART. Compl. ¶ 13. Thus, ATS has not alleged sufficient facts to support a viable claim for misappropriation through use of its trade secrets.

Dkt. No. 21 at 5:28-6:7. ATS was given leave to amend its complaint.

On December 10, 2013, ATS filed an amended complaint. The amended complaint alleged the same three causes of action, [1] with some additional facts pled in support of those claims. Champion moved to dismiss ATS’s first cause of action for violation of CUTSA and ATS’s third cause of action for unfair competition. Defendant did not move to dismiss the second cause of action for conspiracy to misappropriate a trade secret through acquisition. The Court held that plaintiff had stated a claim for violation of CUTSA by misappropriation of a trade secret through acquisition:

ATS's alleged trade secrets consist of “confidential and proprietary information concerning the ingredients, and relative weights of those ingredients, for making fire-safe plastics by combining phenol-resorcinol resins with catalysts and/or fillers.” FAC ¶ 23. ATS alleges that its resins are susceptible to being reverse engineered to disclose ATS’s trade secrets. Id. ¶ 18. Champion allegedly acquired those resins knowing, or having reason to know, that the resins had been created utilizing trade secrets improperly acquired from ATS. Id. ¶¶ 9-13, 17-23. ATS further alleges that, “[a]s a proximate result of said actions, ATS has sustained damages in California in amounts currently unknown for lost sales and/or lost royalties on the sale of ATS Trade Secret resins and products derived therefrom and/or for damages to ATS’s reputation.” Id. ¶ 24. These allegations are sufficient to state a viable claim for misappropriation through wrongful acquisition of trade secrets.

Dkt. No. 37 at 4:13-23. The Court dismissed the claim for unfair competition without leave to amend.

Plaintiff now seeks leave to file a second amended complaint. The proposed second amended complaint adds (1) claims for declaratory relief and injunction arising from the previous Ghiorso case under the doctrine of collateral estoppel, (2) a claim for conspiracy to misappropriate a ...


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